March 20: US Treasury's fall to record low of 0.56%

http://www.interest.co.nzIntro... I'm Bernard Hickey with daily briefing from interest.co.nz...Today, we'll look at why the 3 month US Treasury bill rate hit a 50 year low of 0.56% overnight. This sounds like a dry discussion. It's not. It's all about financial market terror.Than we'll look at the latest from the Fairfax Media Home Loan affordability survey, which shows affordability remains at woeful levels.Terror on Wall StreetBut firstly, we look at something not seen in financial markets for 50 years. Last night the interest rate for 3 month US Treasury bills fell to a record low of 0.56%.What this means is that investors are so desperate to get their hands on these things they bid up the price so high that the yield dropped to 0.56%.One thing to remember whenever you're looking at markets for fixed interest securities. When prices go up interest rates go down. This reflects nothing less than complete financial market terror.People are so afraid of being stuck with a share or a bond that collapses in value that they want to buy the one sure thing they know.That's a debt protected by the power of the world's biggest government to tax the world's biggest economy.To give you an idea of how low this is, just compare the 3 month Treasury bill rate with the 90 day bank bill rate in New Zealand, which is currently at 8.86%.The gap between New Zealand and US short term interest rates is now over 8%.That will protect our currency for now as foreign investors who want some yield will go hunting for higher interest rates. Although this morning we've seen the New Zealand dollar fall almost 2 US cents in less than 12 hours as the return of fear after yesterday's relief hurts the so-called carry trade. But when markets calm down a bit our currency is likely to rebound over 80 US cents again, just as long as our interest rates are so high.Home Loan (un)AffordabilityNow we look at the latest figures from the Fairfax Media Home Loan affordability reports for New Zealand.These reports prepared by interest.co.nz show affordability improved marginally in February. That's because the fall in house prices seen in the last month was almost all wiped out by higher interest.But just because housing is slightly more affordable doesn't make it affordable. More accurate, it's slightly less unaffordable. Most houses remain basically out of reach for most income earners.The only ones who can afford it already have masses of equity built up in their homes or are getting help from relatives or the Lotteries Commission.The home loan affordability report shows the average 2 year fixed mortgage rate rose almost a quarter of a percentage point to 9.56% in February, which almost cancelled out the effect of a 0.7% fall in the median house price to NZ$337,500. This meant the proportion of median take home pay required to service the mortgage on a median house nudged down to 80.2% in February from 80.8% in January.But this is still worse than the 74% of after tax pay required in February last year and the 43.3% required five years ago. Most bankers believe anything more than 40% of after tax pay is unaffordable.Affordability improved sharply in Northland because of a larger than average slump in house prices. Home loan affordability improved marginally in Auckland, Hawkes Bay, Gisborne, Manawatu, Wanganui, Otago and Southland because of falling house prices.Affordability worsened in Waikato, Wellington and Christchurch as prices either continued to rise or were flat, adding to the impact of higher mortgage rates.I'm Bernard Hickey from interest.co.nz with the Daily Briefing. Have a great Easter break. Catch you on Tuesday.

Channel: News & Politics
Uploaded: March 20, 2008 at 12:11 am
Author: ofInterestNZ

Length: 04:32
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